Understanding Consideration in Contract Law: Definition, Essentials, and Exceptions, Summaries of Law

Download Understanding Consideration in Contract Law: Definition, Essentials, and Exceptions and more Summaries Law in PDF only on Docsity! Consideration Meaning:- Consideration is a technical term used in the sense of quid-pro-quo (i.e.., some thing in return). When a party to an agreement promises to do something, he must get something in return. This “something” is defined as consideration. Definition:- According to section 2(d) of the Indian contract Act, 1872, defines consideration as “when at the desire of the promisor, the promise (or) any other person has done (or) abstained from doing, (or) does (or) abstains from doing, (or) promises to do (or) to abstain from doing, something, such act (or) abstinence (or) promise is called a consideration for the promise”. Example: Abdul Aziz (vs) Masum Ali (1914) Facts: The secretary of a mosque committee filed a suit to enforce a promise which the promisor had made to subscribe Rs.500/- for rebuilding a mosque. Judgment: ‘The promise was not enforceable because there was no consideration in the sense of benefit’, as ‘the person who promised gained nothing in return for the promise made’, and the secretary of the committee to whom the promise was made, suffered no detriment (liability) as nothing had been done to carry out the repairs. Hence the suit was dismissed. Essentials of a valid consideration:- The following are the essentials of a valid consideration (OR) legal rules as to consideration. 1. It may be past, present (or) future: ¢ The words “has done (or) abstained from doing refer to past consideration. ¢ The word “does (or) abstains from doing” refer to present consideration. ¢ Similarly the word “promises to do (or) to abstain from doing” refers to the future consideration. Thus, the consideration may be past, present (or) future. 2. It must move at the desire of the promisor: ¢ In order to constitute a legal consideration, the act (or) abstinence forming the consideration for the promise must move at the desire (or) request of the promisor. e If it is done at the instance of a third party (or) without the desire of the promisor, it will not be a valid contract. Example: Durga Prasad (vs) Baldeo (1880); Facts: ‘B’ spent some money on the improvement of a market at the desire of the collector of the district. In consideration of this ‘D’ who was using the market promised to pay some money to ‘B’. Judgment: The agreement was void being without consideration. 3. It must not be illegal, immoral (or) not opposed to public policy: e The consideration given for an agreement must not be unlawful, illegal, immoral and not opposed to public policy. e Where it is unlawful, the court will not allow an action on the agreement. 4. It need not be adequate: ¢ Consideration need not be any particular value. e It need not be approximately equal value with the promise for which it is exchanged. But it must be something which the law would regard as having some value. ¢ In other words consideration, as already explained, it means “something in return”. This means something in return need not be necessarily be an equal in value to “something given”. 5. It must be real and not illusory: © Consideration must not be illegal, impossible (or) illusory but it must be real and of some value in the eyes of law. ¢ The following are not real consideration: (a)Physical impossibility, (b)legal impossibility, (c)uncertain consideration, (d) illusory consideration. 6. It must move from the promise (or) any other person: e Under English law consideration must move from the promisee itself. But, under Indian law, consideration move from the promisee (or) any other person (i.e.., even a stranger). e This means as long as there is a consideration for a promise, it is immaterial who has furnished it. But the stranger to a consideration will be sue only if he is a party to the contact. Example: Chinnaya (vs) Ramayya (1882). Facts: An old lady, by a dead of gift, made over certain property to her daughter ‘D’, under the directions that she should pay her aunt, ‘P’ (sister of old lady), a certain sum of money annually. The same day ‘D’ entered into an agreement with ‘P’ to pay her the agreed amount later ‘D’ refused to pay the amount on the plea that no consideration had moved from ‘P’ to ‘D’. Judgment: ‘P’ was entitled to maintain suit as consideration had moved from the old lady, sister of ‘P’, to the daughter, ‘D’. 7. It must be something the promisor is not already bound to do: A promise to do what one is already bound to do, either by general law (or) under an existing contract, is not a good consideration for a new promise, since it adds nothing to the pre-existing legal or contractual obligation. 8. It may be an act, abstinence (or) forbearance (or) a return promise: consideration may be an act, abstinence (or) forbearance (or) a return promise. Thus it may be noted that the following are good considerations for a contract. ¢ Forbearance to sue. ¢ Compromise of a disputed claim. ¢ Composition with creditors. EXAMPLE:- A promise to perform a public duty by a public servant is not a consideration. Validity of contracts without consideration Validity of an agreement without consideration: minor is not allowed. There is a fundamental principal in law (i.e.., an agreement Void-ab-initio cannot be validated by subsequent action). 4. If he has received any benefit under a void agreement, he cannot asked to compensate (or) pay for it: Under section 64 and 65 of the act, provides a minor cannot be ordered to make compensation for a benefit obtained in a void agreement. Because section 64 and 65, which deals with restitution of benefit. 5. Minor can always plead minority: A minor’s contract being void, any money advanced to a minor ona promissory note cannot be recovered even though a minor procures (or) take a loan by falsely representing that he is of full age it will not stop him from pleading his minority in a suit, to recover the amount and the suit will be dismissed. “The rule of estoppel cannot be applied against a minor”. Example: Leslie (vs) Shiell (1914). Facts: ‘S’, a minor, by fraudulently representing himself to be of full age, induced ‘L’ to lend him L 400 (pounds). He refused to repay it and ‘L’ sued for his money. Judgment: The contract was void and ‘S’ was not liable to repay the amount. 6. There can be no specific performance of the agreement entered into by him as they are void- ab-initio: A contract entered into, on behalf of a minor by his parent/guardian (or) the manager of his estate can be expressly enforced by (or) against the minor, provide the contract is ¢ With in the authority of the guardian and ¢ For the benefit of the minor. 7. He cannot enter into a contract of partnership: A minor being incompetent to contract but be a partner of a partnership firm, but u/s 30 of the Indian partnership Act, provides he can be admitted for the ‘benefits of a partnership’ with the consent of all the partners. 8. He can be an agent: A minor can be an agent. It is so because the act of the agent is the act of the principal and therefore, the principal is liable to the third parties for the act of a minor agent. 9. His parents/guardian is not liable for the contracts entered into by him: The parents/guardian is not liable for the contract entered into by minor. The parents can held liable for contracts for their minor children only when they are acting as agent. 10. A minor is liable in tort ( A civil wrong): Minors are liable for negligence causing injury (or) damage to the property that does not belongs to them. 11. A minor is liable for necessaries: Minor’s estate is liable for necessaries supplied to minor during minority. Minor does not personally liable for the supply of necessaries. The necessaries such as food, clothing, and shelter etc.., necessaries also include ‘goods’ and ‘services’. Person Of Unsound Mind According to section 12 of the Indian contract Act, 1872 “A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he his capable of understanding it and of forming a rational judgment as to its effects upon his interests”. Soundness of mind of a person depends on two facts: 1. Ability to understand the contract at the time of making. 2. Ability to form a rational judgment about the effect of the contract on his interest. Unsoundness may arise from idiocy, lunacy, drunkenness, hypnotism, mental decay because of old age and delirium (high temperature) etc.., A person who is usually of unsound mind and occasionally of sound mind can contract when he is of sound mind. A person who is usually of sound mind and occasionally of unsound mind cannot contract when he is of unsound mind. Thus, the burden of proof will be lie upon the person who claims that he was not of sound mind at the time of making a contract.